Avoid an Employee Benefit Plan Audit with These Form 5500 Compliance Tips

While it may seem like just another annual employment obligation, the federal Form 5500 is an important component of the Employee Retirement Income Security Act (ERISA), which outlines required minimum standards for employer-provided retirement plans intended to protect plan participants and beneficiaries. Jointly created by the IRS, Department of Labor (DOL) and the Pension Benefit Guarantee Corporation (PBGC), Form 5500 receives a high level of scrutiny from each agency for different reasons. The IRS looks for tax compliance, DOL focuses on protecting the rights and benefits of participants and PBGC’s goal is to protect the pension benefits of defined benefit plans.

Information collected on Form 5500 is a significant source of data for the IRS and DOL to identify which plans to audit. Now that computerized review of forms has taken the place of manual evaluations, it does not take as long for a plan to be flagged for additional examination.

Form 5500 audit triggers to avoid

Given these high stakes for compliance, employers should take care each year to ensure that Form 5500 is completed in a timely and accurate manner and avoid reporting questionable information. Want to prevent additional federal regulatory scrutiny of your employee benefit plan? Be aware of the below sections or responses on Form 5500 that can trigger an audit.

Line items left blank (when there should be an answer)

Inconsistencies in the 5500 schedules

Large drop in number of participants from one year to the next

Large dollar amount on “other” line in Schedule H

Hard-to-value investments and non-marketable securities

Consistent late deposit of employee deferrals

Reporting a non-exempt transaction with a party-in-interest

Fees paid by employees

Investments in real estate or partnerships

Loans other than to participants

Inadequate fidelity bond

Inconsistencies between employer contributions on schedule H or I to the amount deducted on the business tax return for the same period.

Some of these items can indicate fiduciary or prohibited transaction violations. In other cases, reconciliation of data and supporting documentation are necessary to defend information submitted.

Prepare a thorough and accurate Form 5500 with RKL

Working with a reputable expert on employee benefit plan administration and compliance, like the team at RKL, can alleviate concerns about triggering an audit. RKL’s employee benefit plan auditors have decades of experience helping organizations scrutinize data provided and prepare a thorough and accurate Form 5500 to ensure compliance. Contact us today for assistance maintaining compliance and applying employee benefit plan best practices.

Contributed by Wendy M. Lakatosh, CPA, Partner in RKL’s Audit Services Group. Wendy serves the general assurance needs of clients in the manufacturing and distribution industries. She also helps companies and organizations manage the fiduciary responsibilities and compliance requirements of their employee benefit plans.